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Leveling the Playing Field: Why India’s NGOs Deserve Financial Equity

• ByStartupStory     |    June 11, 2025

India’s development story is incomplete without acknowledging the indispensable role played by non-governmental organizations (NGOs). These entities serve as the backbone of grassroots implementation—bridging the gap between policy intent and on-ground action. From running health camps in remote villages to ensuring education continuity in underserved regions, NGOs are at the frontlines of nation-building. Yet, while their responsibilities have grown, the ecosystem that supports them has remained inequitable, outdated, and at times, structurally discriminatory.

Today, private limited companies enjoy a wealth of support mechanisms—from overdraft facilities and invoice financing to tax incentives and government stimulus. NGOs, on the other hand, are often left to fend for themselves. Even those formally registered under frameworks like MSME (Micro, Small and Medium Enterprises) or listed on the Social Stock Exchange (SSE) are denied the financial instruments and compliance benefits that their private sector counterparts take for granted.

This article isn’t just about highlighting unfairness. It’s a call to action to rethink how we treat the organizations that are silently driving transformation across Bharat.

Overdrafts: A Lifeline Denied

Let’s start with a basic facility—overdrafts.

Overdrafts are short-term credit lines extended by banks to help enterprises manage cash flow fluctuations. In the private sector, these are commonplace. Businesses use overdrafts to pay salaries, vendors, or handle unanticipated expenses while waiting for receivables.

Now consider an NGO working on a ₹5-crore health project funded by a government or CSR partner. Project disbursements are often delayed by weeks, sometimes months, despite signed agreements. The NGO, though legally entitled to those funds, has no mechanism to bridge that gap. Banks routinely deny overdrafts to NGOs, citing risk concerns—even if the NGO has verified commitments in hand.

The result? Salary delays, project halts, disrupted services, and even loss of credibility with stakeholders.

In denying NGOs access to working capital tools, we are indirectly weakening the very outcomes we expect them to deliver.

The 45-Day MSME Rule: A Promise Unfulfilled

To protect small enterprises from cash flow shocks, Indian law mandates that entities registered under the MSME Act must receive payment within 45 days of invoice submission. This is a powerful safeguard meant to ensure liquidity and timely operations.

Many NGOs, especially those operating at scale, have proactively registered under MSME, hoping to benefit from this rule. However, reality paints a very different picture.

In the development sector, delayed reimbursements—particularly from government departments and large funders—are the norm. The 45-day rule is rarely, if ever, enforced for NGOs. With no recourse or penalty for non-compliance, the burden of delays falls squarely on the shoulders of the NGO.

Ironically, while the rule was created to empower small entities, it has become yet another regulation that is selectively implemented—further deepening the inequality between for-profit enterprises and not-for-profit institutions.

Social Stock Exchange (SSE): Recognition Without Benefits

The Social Stock Exchange, an initiative of SEBI and housed under NSE/BSE, was launched with the intent to bring capital market transparency and efficiency to the nonprofit sector. It introduced rigorous disclosure norms, impact reporting mechanisms, and eligibility criteria to list credible NGOs.

In theory, SSE-listed NGOs represent the gold standard—organizations that are financially compliant, operationally sound, and impact-driven.

Yet a major flaw undermines the SSE’s potential: contributions made by corporates to SSE-listed NGOs do not count as Corporate Social Responsibility (CSR) spend under Section 135 of the Companies Act.

This policy oversight defeats the purpose of the SSE. Why would a corporate choose to donate to a highly compliant NGO if their contribution isn’t recognized under CSR mandates?

Instead of incentivizing good governance and transparency, the system penalizes it—driving corporates toward informal partnerships that simply check the compliance box without necessarily ensuring maximum social return.

Why This Matters: Systemic Inequity

The cumulative effect of these exclusions is clear: a development sector that is asked to deliver more but enabled with less.

NGOs are expected to meet performance metrics, impact standards, and rigorous audits.

Yet they are denied bridge capital, payment protection, and CSR benefits.

They are praised for their resilience, but that very resilience is born from a lack of institutional support.

This is not just unfair. It is counterproductive. When credible NGOs are weakened financially, entire communities lose access to healthcare, education, and livelihood services. In effect, India loses.

A Call to Action: Empower Those Who Empower India

India stands at a pivotal juncture. On one hand, we are cultivating world-class startups, enabling a trillion-dollar digital economy, and pushing the boundaries of innovation. On the other, we have NGOs delivering essential services to those left behind by markets and public systems.

We cannot afford to build two Indias—one empowered, one unsupported.

NGOs are not passive recipients of charity. They are active drivers of change. They don’t just complement the state and market—they fill critical voids, innovate grassroots solutions, and build resilient communities.

If private companies are given access to financial tools, capital cushions, and compliance benefits, why not NGOs? The logic is not just ethical—it’s economic.

To create a truly inclusive India, we must:

Extend overdraft and bridge loan facilities to NGOs with verified grants or funding commitments.

Enforce the 45-day MSME payment rule across all sectors, including for NGO-related government and donor projects.

Amend CSR rules to allow donations to SSE-listed NGOs to qualify under statutory CSR obligations.

Develop NGO-specific financial instruments and credit frameworks, possibly through public-private banking collaborations.

Promote financial literacy, digital tools, and banking partnerships tailored to the nonprofit ecosystem.

Conclusion: Let’s Level the Playing Field

We must stop romanticizing NGO work while systemically restricting it. Recognition without empowerment is meaningless.

It’s time we stop offering only applause and start delivering access, inclusion, and agency. India’s social sector deserves more than compliance burdens—it deserves financial dignity and operational freedom.

This is not a call for charity. It’s a call for equity. A call for logic. A call for a country that stands behind its changemakers.

Let’s finally back the organizations that are backing Bharat—quietly, consistently, and courageously.

By Jyotasana Apoorva, CEO – Foundation for Health and Learning Empowerment (FHLE)

 

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